nun

Yes you can, but if you move back to the US and want to start Medicare again the premiums will be inflated by 10% for each year to miss payments.

robin1234

If you choose to stop paying for Medicare Part B, you can, but as nun says, there is a cumulative penalty if you need to start it up again in later life.

More complicated is the question of whether or not it will be possible to start up a Medicare Supplement policy or a Medicare Part D policy in later years, if you returned to the U.S. to live, because of exclusions and other punitive measures.

Depends if you know for sure you won't return to the U.S. to live, or make frequent trips to the U.S. If you plan to make trips to the U.S., you would have to get travel insurance if all you have is Medicare Part A. And travel insurance may not be available as you age...

London1947

Hi, I lived in the US for many years and then moved back to the UK. Social Security payments are taxable in the US only every we have a CPA do our taxes. That is of course that you fall into the tax threshold. You are not taxed by the UK as you would not be double taxed.

nun

Your wording is a little confusing, but US SS payments made to a UK resident are NOT taxable in the US, they are only taxable in the UK. Your CPA needs to read Article 17, paragraph 3 of the US/UK tax treaty and Article 1, paragraph 5a. Likewise UK state pension payments are UK tax free when paid to a US resident.

Interestingly, UK state pension payments made to a US citizen resident in the UK are taxable in both the US and the UK because they are not a cross border payment and because of the Saving Clause in the treaty. This is probably not the spirit of the treaty, but follows from the wording. Double taxation is avoided by applying Article 23 and foreign tax credits.

theOAP

Assuming the pension is in the drawdown phase, are you receiving US Social Security payments paid directly to the UK, or are they being paid to an account in the States? Are you on the remittance basis for UK tax?

The general rule, according to the tax treaty, is if US SSA payments are being made directly to the UK, they are taxable only in the UK.

theOAP

It looks like you type faster than I do, nun. Could it be age related?

nun

I believe the residency status of the SS recipient is the deciding factor, not the location of the account they are paid into.

fulwood

nun, you gave me advice recently about a different option other than converting IRA to Roth. Do you have a link that can give me the info in layman's terms?

theOAP

I tend to agree with you, but in this instance we're talking about a CPA doing the return and they may have a unique but still highly suspect approach.

If there are any comments in this thread as to the simplicity of doing US taxes whilst resident abroad, let this be a lesson.

London1947

Sorry if my post seem confusing, but my US SS is paid into a US bank acct then we transfer from that bank into a UK bank for paying bills ect. Yes we have to deal with any fee's connected to that transfer. I am a dual citizen and I only get a small UK pension with 22 years of NI payments. I fall well below the taxable thresholds both UK and US tax codes. I paid into the US SS system for 30 years and took early SS with a reduced monthly payment. So as the payment goes into a US bank I have to deal with the IRS in the States.

nun

Yes the CPA will just apply IRS rules as that's what they are supposed to do. I really can't criticize them. Unfortunately this might actually get the OP into a double tax situation because I don't think HMRC is obligated to give a foreign tax credit for tax paid on US SS by a UK resident.....however, they probably will. Still if you are a US citizen living in the UK SSA won't withhold any tax from your SS payments and its easy enough just to enter "0" on 1040, line 20b. If you are an NRA 25.5% tax will be withheld, but you should still enter "0" on line 20b to claim the tax back.

nun

Sorry, your understanding of your taxes is a little lacking. If you fall below taxable thresholds this might all be semantics, but you are definitely not filing your US or UK taxes correctly according to IRS and HMRC rules and how they are modified by the treaty.

If you fall below filing thresholds then there is no issue, but to correctly assess the thresholds in the US and the UK you need to correctly attribute taxable income to either the US or the UK and I don't think you or you CPA is doing that.

nun

You'll have to give me a bit more info to jog my memory.

theOAP

I'm now becoming slightly worried by this.

First, the payment into a US account could be due to the need to have funds available in the States, so it might be understandable. Everyone has their own reasons. But if the funds are not required in the States, it would be much easier (and profitable in terms of these funds) to have them paid directly into a UK account. They would be paid, gross, by US SSA every month, by the 3rd of that month, at the best exchange rate available anywhere. The US SSA has no problem with this; it's the way my and many others SSA payments are made.

But, that may create a problem. The understanding is London1947 is resident in the UK. Is London1947 at present filing a return in the UK? The indication seems to be no. The US SSA funds combined with the UK State pension may place them over the personal allowance and require the filing of a UK self assessment form (including foreign pages) with the need to pay 20% tax on any amount over the threshold. It's worth noting London1947 will only be taxed on 90% of the SSA funds sent to the UK; 10% will be tax free if filing on the arising basis. Avoiding this may be the aim of the CPA, but only they and London1947 know the answer. Obviously the CPA has concluded the combined income from US SSA and the UK State Pension is below the US thresholds (the UK SP should be declared on a US return) since no US tax is due. One would hope they have made the correct assumption.

I won't get into the discussion of what is the correct way to file verses the questionable method being employed presently, but it's possible the CPA is recommending this course of action to avoid both taxable income and filing requirements. Risky.

I suggest London 1947 discuss the situation with their CPA.

The only advice I would offer is my standard amateur opinion; if resident in the UK, get UK tax obligations sorted properly first, then worry about the US obligations after that.

With 30 years of SSA contributions, WEP is not a problem.

nun

As a US citizen you always have to deal with the IRS. If the sum of your US SS, UK state pension and any other income you have is greater than your UK personal allowance (10K GBP) you will have to pay UK tax.